THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JOHN KING, HOST: Thanks Wolf and good evening everyone. This will be remembered as a busy and a pivotal day in the political crisis in Libya as anti-government protests intensified and reached deep into the capital of Tripoli, Moammar Gadhafi defiantly vowed to hold power.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE (through translator): We can destroy any assault with the people's will, with the armed people, and when it is necessary the weapons depots will be open to all the Libyan people to be armed. All the Libyan tribes. And then Libya will become a red fire. Libya will become an ember.

(END VIDEO CLIP)

KING: But anti-Gadhafi protesters, well, they're equally defiant, using Friday prayers as a rallying point for major marches across the country. And those marches went from east to west. We had them over here in Benghazi. Check out this image here. Anti- government protesters now in control of Libya's second largest city celebrating here with their weapons.

This in the east in Benghazi -- more consequential, of course, the marches here in the capital of Tripoli -- watch this playing out -- this the seat of power in Libya. This right now the most consequential place to watch as this political crisis unfolds. And as it does, Americans escaped the tense Libyan capital today by ferry and by plane. And this is noteworthy. As they did, the Obama White House quickly pivoted to a much tougher tone.

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JAY CARNEY, WHITE HOUSE PRESS SECRETARY: It's clear that Colonel Gadhafi has lost the confidence of his people. He is overseeing the brutal treatment of his people, the fatal violence against his own people, and his legitimacy has been reduced to zero.

(END VIDEO CLIP)

KING: With that new tone also came some new U.S. sanctions against Libya. And the United States tonight is working both within the NATO military alliance and the United Nations on additional steps and sanctions -- a lot of new breaking news ground to cover tonight. Let's begin in Libya with our senior international correspondent Ben Wedeman live tonight in Benghazi. And Ben, you are right there in the thick of it. What is the sense from the people you're talking to and your own instincts how long can Gadhafi hold on?

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, it doesn't seem that he can really hold on much longer. I mean, if you look at the eastern part of the country, it is firmly in the control of the opposition. We saw a massive demonstration here. Thousands and thousands of people braving some very cold and wet and rainy weather to not only demonstrate against the regime but also to express their solidarity with the people in Tripoli, who according to eyewitnesses tried to go out into the streets after Friday prayers and protest but of course they quickly came under what we were told was intense gunfire from government forces.

Now, what we're seeing, though, is an attempt by the Libyan government to, in addition to wielding the stick, to also bring the carrot and dangle it in front of the Libyan people. We saw on Libyan state television that the government is now offering every Libyan family $400 and also offering to increase state salaries by as much as 150 percent. But John, the feeling is that really it's only a matter of time before the forces that are trying to oust Moammar Gadhafi finally succeed and achieve their goal. Of course, the worry is that Colonel Gadhafi, as he is cornered, may become even more violent and dangerous -- John.

KING: And Ben, I'm sure that is the fear. And describe how they are trying to organize to prevent the stick. You described the carrot Gadhafi is offering. But if people are expecting the stick, it's a -- sort of a ragtag group here, but how do they come together and organize, whether it's gathering weapons, whether it's organizing community groups or militia groups? Are they prepared, do they expect in Benghazi as we watch what happens in Tripoli, do they expect the fight to return?

WEDEMAN: They don't necessarily expect the fight to return. But what's happened is that in the initial phase right after the pullout of government forces from Benghazi, there were a lot of army bases that were abandoned and therefore a lot of weapons fell into the hands of ordinary people. Now, the committee that's running Benghazi at the moment is encouraging people to surrender their weapons.

But they don't apparently want them to give up all their weapons. They want some people to keep some AK-47s and pistols just in case the government tries to reassert its authority here. They also have a special committee that is trying to sort of organize the defense of Benghazi if it comes to that. But the feeling is it may actually be a case of the people of Benghazi and other Libyan towns and cities heading in the direction of Tripoli to try to finally topple this regime -- John.

KING: Fascinating. Ben Wedeman, we're lucky to have you reporting right there in the middle of it. Stay safe, and we'll stay in touch. Now, it was an eight-hour journey for some 300 people, 183 of them Americans, aboard a ferry boat that carried them from Tripoli to safety in the tiny nation of Malta.

You can see up here video of that ferry coming into the dock in Malta carrying those people, again, 183 of them Americans. Now Ziad Kasad (ph) is a Libyan-American construction worker. He's from Chicago. We spoke by telephone just after the ferry reached the dock, and he described the horror, the things saw in Tripoli's Green Square.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE (via phone): Shooting everywhere. Like even on the walls, just like that to have fun --

UNIDENTIFIED MALE: When you say --

UNIDENTIFIED MALE: To hurt the people, to terrorize people.

KING: And who was doing the shooting? Were they in army uniforms? Were they in plain clothes?

UNIDENTIFIED MALE: No, they were in plain clothes, but they held like photos of Gadhafi. They were pro government. For sure like more than 100 people they were shooting.

KING: What is your sense of what will happen now in Libya?

UNIDENTIFIED MALE: I think it will get uglier after I saw like Gadhafi's speech. It's not getting better at all. It's either him or the people.

(END VIDEO CLIP)

KING: CNN's Ivan Watson was at the pier when that ferry arrived and joins us live now with more on the dramatic trip and some of the new details we're learning from those so happy to leave the violence behind -- Ivan, a dramatic day for you. Tell us what you're learning from these people who are so happy to have escaped it but carry with them all the stories of what happened in Tripoli.

IVAN WATSON, CNN CORRESPONDENT: Well, John, it does appear that this was a carefully choreographed evacuation of U.S. Embassy personnel in addition to hundreds of other people from Libya. A ship that had been stuck due to bad weather in the harbor of Tripoli for two days finally was able to leave this afternoon to head here to Malta. And then a plane took off from Tripoli to Istanbul.

On board the charge d'affaires and presumably of the U.S. Embassy in Tripoli and presumably other diplomats as well as other Americans and moments after that plane took off a White House announcement that sanctions would be imposed on Libya and that the U.S. Embassy's operations would be suspended. Presumably after all of these American diplomats had been pulled out of the country and were safe -- the timing very, very interesting. And it does appear to have been scripted -- John.

KING: Absolutely. Let's listen to a bit. A bit earlier you had the pleasure to speak to one of the evacuees coming off that boat. Her name is Yusra Tekbali. Let's listen to a bit of her story and then we'll talk a bit on the other side.

(BEGIN VIDEO CLIP) YUSRA TEKBALI, EVACUATED FROM LIBYA: I feel relieved to be off that boat. We were there for three days. I feel safer. But at the same time my heart is completely in Libya right now. When you have African mercenaries in the country and you have people hired to kill to do that, you can't take that lightly. And I think that the world -- Libyans know what this regime is capable of, but I think for the first time the world is actually seeing it. And that's really what drove us I think out.

(END VIDEO CLIP)

KING: Ivan, it is heartwarming. And you have such admiration for these people who have been through such a harrowing ordeal and they say how happy they are to leave but how their hearts are still with the people because of the horror, the bloodshed, and the shooting they have seen behind. These stories are remarkable.

WATSON: That's right. And I mean you hear from this young woman and other people that I spoke with as well. Yes, they're relieved to have escaped the immediate danger, but they have friends. This woman has family left behind in Tripoli, even though she came out with eight of her family members. She says her mother, who was born there, had to flee her own city. So this is terrifying.

These are basically refugees. And the big question is what happens to Libya in the future, to the millions of people left behind? Could the bloodshed get worse? Can countries like Malta -- is terribly afraid that there could be a refugee exodus, in addition to the current exodus that has begun of foreigners of all different nationalities that are currently fleeing Libya and what's left of Moammar Gadhafi's regime.

KING: Ivan Watson for us in Malta. And just to take a peek at the map -- you can see the trip they took by ferry and those on the boat describe rough seas. In fact, many of them said as they got closer to Malta there was a lot of sickness and illness and vomiting on the boat because of those rough seas but despite that they are happy and relieved to be in safety tonight.

Now Ivan noted the new sanctions announced by the White House today. They came after days of criticism at home and overseas that the administration was moving too slowly, being too timid. Well the White House says priority number one was making sure those Americans in Libya did not become hostages or pawns of any sort in a political crisis.

(BEGIN VIDEO CLIP)

CARNEY: There has been a clear reason for the way we have handled ourselves this week. The airplane that carried American citizens, the remaining American citizens that we wanted to get evacuated from Libya, was wheels up less than an hour ago.

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KING: Our foreign affairs correspondent Jill Dougherty joins us with more on these diplomatic efforts. And Jill, let's just start with you know diplomacy is often a secret business and often of nuance and they don't want to tell us everything. It's pretty fascinating to see the White House just come right out and admit you know what the president knew he was taking heat. The president was happy to take heat for a few days if necessary because he wasn't going to do anything, get more aggressive until those Americans were safely out.

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Yes, you know John that really is true, at least that's what we were being led to believe. But to hear it said as overtly as that is very, very interesting. And there was a lot of concern. In fact, at the briefing that we had here at the State Department we were talking about whether there was any security when actually -- when that ferry was coming out and P.J. Crowley just kind of jumped in and said you know that the military were watching this, and they were kind of over the hill available to do something should something happen. So there was concern right up until the end.

KING: And how -- I'm afraid to use the word how optimistic because I assume they're quite pessimistic that somehow diplomatic pressure including sanctions will sway Moammar Gadhafi.

DOUGHERTY: I don't think that they are very optimistic at all. In fact, looking at the last few minutes as I have in the show things appear to be getting worse. And so you'd have to look at what the administration is doing. They keep talking about this range of options. And now you can really kind of see it coming into effect.

Starting with the sanctions, unilateral sanctions, then internationally coordinated sanctions. Then you go to pressure against the regime, individual people who are in the regime, with travel bans, asset freezes, et cetera. And the big question would have to be military action or perhaps taking ultimately Gadhafi if he were to go down and they could get him to the international criminal court.

But again, at this briefing today they used the word "building the case". Jay Carney saying this is not the end point. So they're obviously planning to really look at almost the legal case you could make against Gadhafi for all of these atrocities.

KING: It's a remarkable juncture we are at. We will see if diplomatic pressure works and as they build that case. Jill Dougherty at the State Department thank you.

Still to come here, more firsthand accounts of the bloody chaos in Tripoli.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: What I saw was bodies lying down on the ground en masse. You know you could say maybe 20 to 30 per site. And that was only in one day.

(END VIDEO CLIP) KING: But next, global outrage grows, but what can the United States, the United Nations, or NATO do? Is there any reason to believe Gadhafi will listen?

(COMMERCIAL BREAK)

KING: The international response to the Libya crisis gains sudden urgency today. The NATO Military Alliance called an emergency meeting. As did the United Nations Security Council. At that session in New York the Libyan ambassador to the U.N., a one-time Gadhafi confidant who says he now sides with the protesters, offered this harrowing assessment.

(BEGIN VIDEO CLIP)

ABDURRAHMAN MOHAMED SHALGHAM, LIBYAN AMB. TO U.N. (through translator): Moammar Gadhafi and his sons are telling the Libyans, either I rule you or I kill you.

(END VIDEO CLIP)

KING: And this is just as ominous. Maybe more so. Listen to the dictator's son, Saif Gadhafi when asked by our sister network, CNN Turk (ph), if the family would consider leaving Libya and yielding power.

(BEGIN VIDEO CLIP)

SAIF AL-ISLAM GADHAFI, MOAMMAR GADHAFI'S SON: We have Plan A, Plan B, Plan C. Plan A is to live and die in Libya. Plan B is to live and die in Libya. Plan C is to live and die in Libya.

(END VIDEO CLIP)

KING: So is there anything in the face of that the United States and its allies can do? CNN senior political analyst David Gergen has advised four U.S. presidents. Retired General Wesley Clark's career included a stint as the supreme allied commander at NATO. And Ambassador Wendy Sherman is a veteran American diplomat whose experience with rogue regimes includes time across the table from North Korea's Kim Jong Il.

Before we get started I want you to put all three of our guests on the screen for a minute. I just want to ask you for a show of hands. Is there anyone -- raise your hand if you believe President Sarkozy of France has said Gadhafi must go? The White House said he has zero credibility. Raise your hand if you think Gadhafi will listen and leave.

I think that speaks volumes right there. And so the question now is what do we do? General Clark, I want to start with you because when you hear the North Atlantic Council is having an emergency meeting the first instinct is to say is there some military option here on the table? Is there a viable military option to deal with this crisis? GEN. WESLEY CLARK, U.S. ARMY (RET.): Probably not at this point. You have to -- first of all, you have to have a legal basis for action, and secondly you have to figure out what the objectives are. Now, if there's a U.N. Security Council resolution under Chapter 7 that gives all available means, then the United States and its NATO allies could go in and we could deliver humanitarian supplies.

We could protect people from violence. I think the last thing we would do is go in and actually target Gadhafi. Nothing's ruled out in this case. The more the violence escalates the more options will be considered.

KING: So -- but Wendy, he is described as a mad man, as somebody who is irrational, as somebody who might be delusional. Fareed Zakaria has sat across from him and said he thought he was on drugs. The behavior was so strange. So how do a bunch of logical people at the State Department, at the White House, at NATO, around the world, can a bunch of logical people, rational people come up with a plan to influence an irrational man?

WENDY SHERMAN, FORMER SPECIAL ADVISER TO PRES. CLINTON: Well, what I think you're seeing is a ratcheting up of pressure. As you noted in your earlier report on individuals' ability to travel, on their economic and financial assets, arms embargoes on the country that are being considered, no-fly zones. So what we're trying -- seeing is an escalation of international pressure that says to the people who are pushing against the Gadhafi regime the world supports you.

That increases their ability to sustain the horror that they are going through. They know that we may eventually get to some of the options that General Clark outlined. Hopefully, I don't think anybody hopes we get to that place, but they'll know that the world is ready to do what is necessary.

KING: David there was a lot of criticism including some on this program from people saying why was the White House slow to act, why did the president seem to be timid, why did he go several days without speaking personally to this crisis? And you heard the White House today saying priority number one we're not going to have a hostage crisis. We were not going to let the Americans be taken prisoner or let the Americans be somehow used as a pawn. Was that the right approach for this president?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: I think that was a sound approach. But now that they have gotten Americans out of there and most westerners are gone and the United States government has announced that it is going to put sanctions in place, it seems to me that there's an even greater danger of being too cautious now. Now that they've declared themselves, they've got to move with dispatch, with urgency. People are being murdered in the streets of Tripoli right now.

And I would think that anything that just involves an escalation of sanctions and warnings and so forth and so on is -- we all know those are not going to work. You know so I would think that he would -- to go to Wes Clark's point, he knows more about this than anybody here -- is that I would think we move this right away, tomorrow, this weekend to get the necessary legal passages in the U.N. and then get NATO involved here.

I cannot imagine we're going to sit on the sidelines. And as irrational as Gadhafi is, and by the way, his son is not irrational. I've met with him once for a couple of hours a few years ago and he's not irrational at all. As irrational as Gadhafi is, and he's a little crazy, we do know that when we used military force against him and almost killed him, he came to real fast and he snapped to. He does -- this is not a man who wants to die.

KING: So Wendy, is there a will in the world to unify, to at least put on the table the steps David and General Clark are talking about so that Colonel Gadhafi would look and say we are serious, sir, we are deadly serious?

SHERMAN: I think we are beginning to see that international political world come together and that will. I think when we saw Libyans themselves say I no longer work for Colonel Gadhafi, I work for the people of Libya, you are seeing an enormous change in the levers of power. And I think the president's been on the phone to world leaders who have influence and leverage with Gadhafi, not necessarily because he will then leave when they say so, but it increases and intensifies the pressure and says the world is on the side of the people who want a future.

KING: General Clark, in recent years there has been a -- what I'll call a global detente with Colonel Gadhafi. The Bush administration made amends with him when he agreed to give up his weapons programs including the developing of a nuclear program. But many Americans remember the face of Gadhafi as the face of terrorism before we knew Osama bin Laden, there was the Pan-Am bombing, there was the Berlin disco bombing. What does he have at his disposal now? Is he capable of using, say, mustard gas or any other weapons of mass destruction against his own people?

CLARK: Yes, he may still have chemical weapons there. It's not impossible. He could even have biological weapons there. We think he doesn't have any nuclear weapons. But he's got high explosives. He's got anti-aircraft weapons with exploding shells. He could do a lot of damage and kill a lot of people if this gets out of hand. But as -- just to follow the point, John, as the violence escalates, so will international opinion come down ever harder on Gadhafi.

It's much better for all concerned if the Libyan people and their demonstrations and their pressure convince him he's lost legitimacy and has to give up power. And I think that the nations of NATO will eventually take action. I think they want to be sure it's perceived not as a NATO invasion of the country, but as an expression of a humanitarian operation to help the people of Libya.

KING: I ask General Clark, David Gergen, Wendy Sherman to stand by one second. Still to come here, a Libyan-American just back from Tripoli describes the slide into chaos.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: We are 100 percent certain that these were not Libyan troops. These were mercenaries sent in from other countries that were firing onto the crowd.

(END VIDEO CLIP)

KING: And next, the new sanctions mean hunting for billions of dollars in Libyan assets in the United States and around the world.

(COMMERCIAL BREAK)

KING: In his defiant public statement this morning the Libyan leader, Moammar Gadhafi's vow to fight to the end included a clear reference to why he is so reluctant to yield power.

KING: Libya's oil is the source of its wealth and of its dictator's global influence despite decades of erratic and even terrorist behavior. Tonight the United States and its allies are searching for tens of billions of dollars in Libyan assets spread around the world. In all I'm told tonight by an Obama administration official that Libya holds more than $70 billion in foreign assets.

Will freezing those assets influence a dictator who often appears less than stable? Let's continue our conversation with David Gergen, General Wesley Clark, and Ambassador Wendy Sherman. Ambassador, let me start with you first. This is one of the WikiLeaks cables that was leaked out and in this one of the U.S. diplomats says 300 to $500 million just in U.S. bank accounts. I assume that would be easy to find. But is this search for the money, it's important, but is it likely to bring about the desired result?

SHERMAN: It is a very essential tool. We know that Moammar Gadhafi wants to hold on to that money, hold on to that control, hold on to that power. Today we took unilateral sanctions to say that the Financial Crime Asset Network, that's a U.S. institution, ought to as they can make sure that we're not seeing movement of money that we shouldn't see. We expect there to be multilateral action that's taken, perhaps through the U.N. The European Union is looking at what actions they're going to take, and we've seen in other instances with dictators that freezing financial assets, going for where the money came from does make a difference.

KING: General Clark, this is easier for the United States, which has limited dealings with the Libyan government than it might be for Italy, which gets most of its oil from Libya, and perhaps others in Europe that have more established commercial, financial relationships. Do you get the sense that Gadhafi has reached the threshold where the world will be unanimous in searching for the money or will there be resistance?

CLARK: No, I think he's coming up on the threshold. What's happened in Tripoli today and tonight and what happens there tomorrow will I think be definitive. And the fact is that there are other protesters joining in and I think as the world sees this that despite the commercial interests these countries may have in Libya they're going to have to see that it's not sustainable with Gadhafi there. He's lost the mandate. He should be out.

KING: Any confidence, David that financial sanctions will put enough pressure, perhaps not on the dictator himself but on his sons, who would be -- have control of some of that money, on somebody in the family to say enough is enough?

GERGEN: I think it may have some influence on his son. I think Wendy Sherman makes a good point about all that. But I'm not sure it will upon the father because he's so crazy. And if he's willing to die I don't think he really cares about all that much -- what happens to the money. There is this additional issue, John, and that is what about the oil? There is a danger in it. There's a fear in Europe that he's going to try to torch the oil fields, you know as he falls. And you know, that's the fear we had about Saddam Hussein. If that were to happen, I don't know where Wes Clark would come out on this, but the issue would be should we be in a position to go in and protect the oil fields? Because this could have significant impact on world economic conditions.

And then ultimately, Wes, the question is going to become: if he falls and we have a failed state like Somalia, what is going to be the responsibility of the United States and other nations in dealing with that? That's going to be such a mess.

KING: Well, General Clark, address that question. And I've come over to the map just to show some of the natural gas and oil pipelines and facilities. And they are significant.

Now, Libya's percentage of the world oil output is significant but not enormous. But, General Clark, if he made a move to torch some of this, what then would happen? And should the United States, should NATO, should somebody try to pre-empt that?

CLARK: Well, it's 1.6 million barrels a day. The Saudis probably have that much capacity they could bring online if necessary. I'm sure we know where those are. We've got some ability to take action in there.

We have to ask: is that the right thing to do, to spread out a bunch of troops around these oil fields? Probably not. Because what's going on is -- that's peripheral. What you really want to do is influence what's actually happening.

Now, what's happening is that as the protesters close in on Gadhafi, his mercenaries are going to become more and more desperate. They're going to use more and more violence. And this is going to come to a head in all probability. And they're going to run, defect, be killed by the protesters or something. And he's going to be gone. That would be my guess, before some of these nightmare scenarios.

And you're left with what David's worried about, which is: OK, then what happens to Libya? And that indeed is a problem.

But on the other hand, this is the Mediterranean. It's across from Europe. There are a lot of educated people in Libya. There's a lot of western influence in Libya, even though the elements of democracy aren't there. I think this is much less likely to turn into a Somalia-style failed state.

And I think it's a -- this is a situation with 6.6 million, 6.5 million people that the West can grasp, work with and help come to terms if the slaughter doesn't continue.

KING: It's a big if. And we hope the slaughter doesn't continue. But, David, you've made the point earlier. He's willing to die. Gadhafi himself said he would be a martyr if necessary.

I want you to listen to this conversation. Wolf Blitzer had the U.S. ambassador from Libya on his program. Now, the ambassador, just like the U.N. ambassador, once a Gadhafi loyalist, now says he sides with the demonstrators, that Gadhafi has to go. But listen to Ali Suleiman Aujali here talking about what he thinks will happen with Gadhafi.

(BEGIN VIDEOL CLIP)

ALI SULEIMAN AUJALI, LIBYAN AMBASSADOR TO U.S.: I think he's a very stubborn person, you know? I believe that maybe he's commit suicide or maybe killed by one of his security --

WOLF BLITZER, CNN ANCHOR: You think he would commit suicide?

AUJALI: -- or maybe he has some places where he can hide for some time. But our priority, that he stop killing. Second thing: that he must step down.

(END VIDEO CLIP)

KING: Wendy Sherman, the ambassador matter of factually says maybe he'll commit suicide or maybe he'll be killed by one of his security.

SHERMAN: I think that there are all kinds of possibilities that happen here. I actually I'm on the side of your other guest that I don't think Libya will descend into a Somalia-like situation. We've seen in Benghazi where people are already organizing a community without a government in power. I have a lot of faith in the Libyan people for the way they're trying to gain their freedom, and I don't think Gadhafi is long for this world.

KING: It has in fact been remarkable to watch Benghazi and the other cities that have fallen out of Gadhafi's control, how organized the locals are and how peaceful they are so far -- their first priority being to keep order and restore services. That has been remarkable to watch and we wish them success.

General Clark, David Gergen, Ambassador Sherman -- thanks for coming in tonight.

Still ahead here: the United States runs out of money one week from tonight. Amid all the partisan finger-pointing, are there maybe clues to a compromise?

And next: tonight's top headlines and a young Libyan-American gives us a firsthand account of the bloodshed in Tripoli you that won't want to miss.

(COMMERCIAL BREAK)

KING: Welcome back. If you're just joining us, here's the latest news you need to know right now. George W. Bush abruptly canceled a weekend speech in Denver because the WikiLeaks founder Julian Assange is supposed to address the same gathering. The spokesman says, quote, "The former president has no desire to share the forum with a man who has willfully and repeatedly done great harm to the interests of the United States."

In a barrier-breaking appointment, Jeremy Bernard will be the next White House social secretary. He'll be the first openly gay man to serve in that post.

In Libya today, a break in the weather allowed hundreds of U.S. citizens finally to get out of harm's way. A U.S. chartered ferry arrived in Malta a few hours ago, and a plane carrying Americans landed in Turkey.

Back in Tripoli witnesses say pro-Gadhafi forces fired on anti- government protesters today. It isn't the first time, sadly, that has happened.

A bit earlier today, I spoke with a Libyan American who was working in Tripoli as those protests intensified. He's now back safely in the United States and I asked him to describe what he saw one day as the protesters came into Tripoli's Green Square.

(BEGIN VIDEOTAPE)

SALAH GAMOUDI, WITNESS TO VIOLENCE IN LIBYA: The protesters came into the square in a mass and they were there for maybe approximately 20 to 30 minutes. But they -- the snipers were actually posted up around the Green Square. Green Square is sort of surrounded by high- rise buildings and office buildings, some, you know, construction sites, things of that nature. And so these snipers were posted in these buildings and started firing onto the crowd. And I did witness that firsthand.

KING: And we have heard reports of mercenaries flown in, brought in, paid for by Colonel Gadhafi to come in and reinforce. Did you get a firsthand look at that? GAMOUDI: Absolutely. These people didn't speak Arabic. They were of African and some of European origin. There were rumors that the European descended troops or mercenaries were from Serbia or from Belarus. We were not sure of that.

But we are 100 percent certain that these were not Libyan troops, these were mercenaries sent in from other countries that were firing onto the crowd.

KING: And as you watch this, do you have any sense of how many people you personally witnessed falling in the gunfire that were shot?

GAMOUDI: Personally, what I saw was bodies lying down on the ground en masse. You could say, maybe 20 to 30 per site. And that was only in one day. And that was only in one shooting.

Whether they were wounded or killed I don't know. I was also one of the people that was fleeing the scene. But there were bodies on the ground certainly, and some of them were absolutely not moving and probably dead.

KING: And so, you left the country and came home to the United States. But you have family, relatives still in Libya. Are you able to keep in touch with them? And if so, what do they tell you about the situation now?

GAMOUDI: Yes. So I have been able to keep in touch with them. My entire father's side of the family is actually in Tripoli now. And most of them are stating that some neighborhoods are very quiet. But those are also the same neighborhoods that just don't have anybody going outside.

Going outside during the day or the night is very, very dangerous right now. You have African and -- like I said, African and European mercenaries that are posted throughout the city who will fire on you if they believe that you are of any threat to the government or have any anti-government stance.

Certain neighborhoods, we have heard reports that they are going door to door and harassing families that they consider to be anti- government or have been reported to be anti-government within the city.

KING: So, when you see Colonel Gadhafi on television saying that he will die in Libya as a martyr if necessary and saying that you know, he will arm his supporters and have a fight to the death, what goes through your mind?

GAMOUDI: Well, first of all, he will probably get his wish. And he will go down as a martyr, maybe to his own people. Certainly not to ours.

(END VIDEOTAPE)

KING: Still ahead here, Libya not the only scene of protests today. Hundreds of thousands marched in the Middle East and North Africa. We'll show you how that played out.

But when we come back, one week from tonight, the government runs out of money. Will there be a government shutdown or will Democrats and Republicans make a deal?

(COMMERCIAL BREAK)

KING: One week from now, the United States government runs out of money. But tonight and for the first time, Senate Democrats are reacting somewhat positively to a new offer from House Republicans. That offer would keep the government running for two more weeks. But it comes with budget cuts and this warning from the House majority leader.

(BEGIN AUDIO CLIP)

REP. ERIC CANTOR (R-VA), HOUSE MAJORITY LEADER: We hope the Senate is going to finally join us in these common sense cuts to keep the government running, and not continue to play chicken with government shutdown.

(END AUDIO CLIP)

KING: With us now, CNN contributors Erick Erickson in Atlanta, John Avlon in New York, and with me here in Washington, Cornell Belcher.

One of the many advantages and benefits of being married to the senior congressional correspondent is driving to work today I listened to that conference call with the Republicans. And they're essentially saying it's the Democrats who want to shut down. And, of course, there are conference calls every day with the Democrats saying, no, it's the Republicans who want to shut down.

So, we have this, Eric Cantor called it a game of chicken going on. It's a childish game of chicken on both sides. But I want to walk over here just to show you the seeds of potential compromise.

I'll get this to come away here. And see, the 4th, this is one week from today, we run out of money. Well, let's see the possibilities here. OK?

House versus Senate, right? The House is run by the Republicans. The Senate run by the Democrats. Here's what they have on the table at the moment: the Republicans have a two-week funding bill. The Senate Democrats want to fund the government for seven more months. So, a big difference there.

But let's look at the differences in the proposals. Now, they want to eliminate $4 billion total -- $2.7 billion comes from eliminating earmarks already approved. And $1.3 billion is cuts from six federal programs.

Now, again, this is for seven months. So, the Democrats have more cuts, but they also want to get rid of these earmarks and speed up some cuts. So, here's your compromise, agree on the earmarks in the short term, say, two weeks, three weeks, and find the cuts right here.

So, Erick Erickson, shouldn't be that hard? Should be that hard? The seeds of a compromise are there. The question is: can they get over their machismo, if you will, and cut a deal?

But you tweeted, I want to read this, why a U.S. government shutdown is worth it? You actually think this is a good idea.

ERICK ERICKSON, CNN CONTRIBUTOR: Yes, I would love to see a government shutdown unfortunately. I'm probably one of the very few on the Republican side who does.

We had this interesting situation where John Boehner was in Newt Gingrich's leadership team in 1995 and he remembers the shutdown as a bad thing. The Republicans botched terribly the P.R. effort. Bob Dole, then the Senate leader for the Republicans, cut the legs out from under the House Republicans. And it was a free-for-all on the Republican side.

John Boehner and Eric Cantor will stop at nothing to ensure the government continues. They don't want a shutdown, despite some conservatives in the Senate and the House wanting one.

KING: So, stop at nothing, John Avlon, from Erick, who seems to suggest that he thinks the Republicans won't get as much as they can get in a deal. Do you think there will be a deal or will we be here next Friday night counting the hours to midnight?

JOHN AVLON, CNN CONTRIBUTOR: I do think there will be a deal. This is a high-stakes game of chicken. But like in any game of chicken, you know, everyone ends up losing if the two cars collide.

And, you know, with due respect to Erick, there's something nihilist tic in rooting for a government shutdown. When that happens, it really is a dereliction of duty. It's an admission of failure. And the Republican leadership doesn't want a shutdown because they recognize that they will be seen as failures if that goes forward.

And it won't just be the government. I mean, you know, we've got troops fighting in Afghanistan. Washington can't get its deal together. That's a problem -- not only perception but a practical problem.

KING: And it would be a failure on top of a failure because the Congress last year, both chambers controlled by the Democrats, with a Democratic president, couldn't even pass a budget. And now, the Democrats would say Republican objections complicated that.

But your government, ladies and gentlemen at home, doesn't have a budget. That's why we're in this mess right now. They're essentially doing temporary spending proposals.

Cornell, I want you in on Erick's point that the Republicans have this long memory of '94, '95, and that many Republicans think that that hurt them, that damaged them. I want you to listen to David Axelrod. I talked to David in Chicago earlier in the week. And he says, sure, the last time around the Democrats benefited but maybe not this time.

(BEGIN VIDEO CLIP)

DAVID AXELROD, FORMER SENIOR WHITE HOUSE ADVISOR: Well, look, I think the one thing that has been proven over and over again here and abroad in recent years is that the old rules aren't necessarily valid. And one shouldn't calculate based on that. I think that's the biggest mistake you can make in politics is kind of sit on the back of the truck and look backwards and say this is how it happened before. So, this is how it's going to happen again.

(END VIDEO CLIP)

KING: Senate Democrats don't seem to fear this. But if the Democratic White House, they do seem to think this is a bad idea, why the difference?

CORNELL BELCHER, CNN CONTRIBUTOR: Well, I think, from a government standpoint, I think the White House thinks it's a bad idea. I mean, look, I think if the government shuts down, I think most of that blame goes to the Republicans. The dynamic is a little different now because right now the Democrats control the Senate. And the truth of the matter is, if the government shutdowns, it will be between the House and the Senate, more so than the president.

But I think the Republicans are leading this charge right now and they get most of the blame. If they shut down the government, we're going to see a lot of those swing districts that go back and forth in each election swing our way because the Republican brand will be damaged.

KING: You argue that --

ERICKSON: I don't think so.

KING: You don't think so?

ERICKSON: No, look (AUDIO BREAK) Republicans lost exactly nine seats in the House and they gained two seats in the Senate. You know, memories are very short in politics to begin with. And I don't think that will happen. I do think 1995 was a myth largely enshrined in a great "West Wing" episode called "Shutdown" that memorialized the Democratic spin that wasn't really the reality.

BELCHER: But here's the problem, Erick. Here's the problem, though, Erick. If you all hadn't shut down the government, you probably would've lost just two or three seats. I mean, that's the difference.

ERICKSON: I doubt that because they were seats Bill Clinton had won in 1992 overwhelmingly.

BELCHER: Well, there's a lot of seats right now in play that we won. That's my point. There's a lot of seats in play right now that we won. If you guys shut down the government, you look unreasonable, and you're going to take what's probably a pretty -- (CROSSTALK)

ERICKSON: I agree with Axelrod, believe it or not. I think it's different rules this time.

KING: Fire up the breaking news panel, Erickson agrees with Axelrod.

AVLON: You've got to spin pretty hard to pretend that a government shutdown and it's in anyone's interest, particularly the Republicans. And that rearview mirror history just doesn't work. Government shutdown created a lot of problems for Republicans, also, by the way, gave us Monica Lewinsky in a bank shot, lest we forget. But look --

(CROSSTALK)

KING: You know, I had just finally forgotten, thanks.

AVLON: You know, I just thought it's important to keep the record straight, right? That's the role of the independent here. But in honest to goodness, don't let anyone try to convince you that Republicans somehow benefit from a government shutdown. Everyone loses, especially Republicans, but more importantly the country.

KING: On a comedy note, if there's a government shutdown, no pizza. That's the new rule.

(LAUGHTER)

KING: Now, on a serious note -- on a serious note, here's one reason the White House is nervous about this, because you have the unrest in the Middle East and you have gas prices going up, which could complicate an already fragile recovery and make Americans angry as they start paying more and more and more. If you then have a government shutdown and instability and turmoil in the financial markets, don't you then perhaps delay by a day, or a week, or a month an economic recovery and complicate it that this president, Cornell, desperately needs as he heads to the reelection cycle?

BELCHER: Yes, that's part of it. I mean, part of it is that, look, we've got serious big problems ahead of us. I mean, we make the argument that their cuts are going to gut sort of our recovery. If you shut down the government, it hurts the recovery even more. Again, it's piling on.

I've got to say, Erick, the idea that the Republicans are responsible for a government shutdown. I can't see how it's going to be a good thing in its time.

KING: But, can you have a scenario, John Avlon? The Democrats are going to have some cuts. They just have to after the last election. So, why not put some cuts on the table and then make the issue more the family feud among Erick's Republicans over the Tea Party guys saying no, no, it's not enough? AVLON: Tactically, that's exactly right. But, look, the American people want to see cuts and both parties are arguing over cuts. The enemy in any negotiation is the arrogance of the all-or- nothing attitude. And that's what we're starting to see from Republicans. They've got to be careful about the game they're playing here.

The American people want to see cuts and we can have a good debate about that, but if it's all-or-nothing is the standard, the Republicans end up looking arrogant and they lose at the end of the day.

KING: Erick, what are we talking about next Friday night?

ERICKSON: I don't think we'll be talking about a government shutdown. There's -- with the compromise that's coming, we'll put it all for another two weeks, I guess. Ultimately, though, you know, I don't think the Republicans would get dinged if there's a shutdown. I think they will go through every effort that they want substantive cuts.

And remember, for the past two years, Democrats keep saying the Republicans -- or the voters would never side with the Republicans in 2010, and the same people who said that are now saying they'll never side with the Republicans on a shutdown. It's a different era from 1995. People want substantive cuts.

KING: It's going to be an interesting week ahead. If we're here next Friday night and there's no government shutdown, pizza on me. Erick Erickson --

When we come back -- we're going to go to the wall, interesting day in Libya: a fascinating day across the Middle East and North Africa. We'll break it down for you just ahead.

(COMMERCIAL BREAK)

KING: Before we go tonight, let's take another look at a dramatic day, not only in Libya, but across the Middle East and North Africa -- most of the action that we've paid attention to during the day in Libya. Across the country, there were rallies Friday against Moammar Gadhafi, the dictator.

Take a look at this in Benghazi, the second largest the city now in control of anti-Gadhafi forces. You see this celebration here. You see the weapons on the street, as well. The main question, of course, is the capital of Tripoli. And listen here, you see anti-government demonstrators, shaky video, of course, this is posted on YouTube. The challenge to the Gadhafi regime now right in the heart of the country, the capital of Tripoli.

This heart-warming scene today, about 200 Americans among the 300 people on this ferry, that made it safely to Malta at several days at port in Tripoli. Once the ferry arrived and a separate plane in Istanbul, that's when the White House took a much tougher tone.

But let's zoom out and look across the region here. There were protests in Egypt, as well today. The demonstrators say they will come out every Friday. You see Gadhafi's face. Some of this is about Libya. They say they will come out every Friday, though, until the military government keeps its promise to have a democracy and to bring about reforms. We'll keep an eye there.

In Iraq, in Baghdad, Mosul and Fallujah, protests against government corruption, on the lack of services. At least five killed in the protests across Iraq. Remarkable to see those crowds.

Protests again in Bahrain -- and in Yemen, look at this, tens of thousands protesting in Yemen, as well, demanding their president step down and yield power -- all part of a remarkable, remarkable sweep of demands for government reforms and government change.

We'll keep our eye on Libya, Egypt, and across the region in the weeks and hours ahead. This is a time of fascinating change. And it is important to you here in the United States.